The most notorious Forex broker scams you should know

I think we can all agree that fraud is a bad thing, even though it still goes on. I’m willing to bet everyone reading this post right now has been the victim of fraud or knows someone who was. Personally, I have had the misfortune of being conned several times, a few of those in this Forex industry. My story is a combination of clever trickery and ignorance on my part, but the good thing is that I learned from my mistakes. Every day I browse through online forums and Forex broker review website, there is no shortage of FX broker scams, and it seemingly isn’t going to stop unless someone does something about it. I am not too naïve to believe I will be the one to end scams in the Forex industry, but I can make an impact, however small, on everyone that reads this post.

As I experienced myself, scams within the Forex market and even elsewhere usually have more than one party to blame. You may not want to hear this, but you are partly to blame if you have ever been the victim of a scam. That is where we are going to start in this post. We shall look at some scams that have happened in the past so that you can see that you are not the only one to fall for them. Then we shall look at some of the warning signs based on those past cases that will help you spot a scam in the future.

Most prolific Forex broker scams in history

Most of the time, the scams we hear on the news involve the stock markets, but that does not mean the Forex market isn’t as prone to the same. In fact, there have been some newsworthy Forex scams in history that had managed to con investors with millions worth of capital.

One of these was the Black Diamond case that was prosecuted by the CFTC from 2011 and concluded in 2015. The name Black Diamond was used by the CFTC to simplify the extent of the scam itself. Starting in 2007, one Keith Simmons had launched the Black Diamond Capital Solutions, LLC. The company solicited clients with the promise that their funds would be used to invest in the Forex market for huge returns. Among the promises were:

A 4% monthly return

That the losses would never exceed 20% of the clients’ capital

That the clients would always be able to withdraw their funds at any time

Since these Forex schemes started in 2007 until the time it collapsed in 2009, there were about 240 investors who had made deposits worth about $35 million. The scam had got so profitable in its two-year short lifetime that Keith Simmons had brought several partners into the fold. These included Deanne Salazar of Life Plus Group, LLC and Black Diamond Holdings, LLC. Then there was Bryan Coates who ran 4 separate companies including Safe Harbour Ventures, LLC and Divine Circulation Services, LLC and two more.

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Starting in 2011, the investors figured out that it was just a Forex pyramid scheme because they were no longer able to withdraw their funds, nor were they getting the 4% returns they had been receiving in the first two years. By the time the case was concluded, the total fines imposed on the defendants totaled $76 million and they were all given jail sentences.

This scam regarding the Forex market has some of the main markers of a scam that we can all learn from to avoid future scams. To see where the scam lies, I usually like to look at what the company promises its clients. In the case of Black Diamond, they had some pretty unrealistic promises that should have been a red flag. For example, they promised a 4% monthly return! That is a 60% annual return. That right there should have been the first warning sign which everyone should have been skeptical about. Do you remember the Bernie Madoff case? Experts during the scandal were criticizing the investment as being unrealistic when it was just guaranteeing a 10% annual return. Now here comes one that promises 60% annual returns, which makes me wonder why the investors fell for it.

Another sign of an FX broker scam has to do with the company itself. Black Diamond Capital Solutions, LLC, ran by Keith Simmons was never licensed to operate as an investment firm or regulated by the CFTC in the US. Neither were any of those other companies that joined the scam later. This is why I always advise anyone seeking to invest money to do their research on the legitimacy of the company and to, most of all, confirm whether they are regulated. Apparently, those 240 investors didn’t do any of this, and they ended up losing their money. Fortunately for them, they eventually made some of their money back, but not all victims in the past have been so lucky.

Consider Gerald Leo Rogers who ran Premium Investment Corp., TriForex International Ltd. and InForex Ltd. In just a year between 2004 and 2005, the perpetrator had made away with almost $30 million in clients’ funds before being caught. Even then, he only returned $11 million to the defrauded clients, which was about 40 cents on the dollar. The scam ran by Rogers was quite tricky because the transactions and dealings were conducted offshore, which made it difficult for the authorities to get the money back. This shows that investors don’t always get lucky when they fall for fake Forex brokers.

How do you avoid these Forex scams?

I don’t mean to praise these scammers, but most of them are usually very smart people. I can’t see how an idiot could put together a scam that made tens of millions of dollars. However, just as the scammers may be smart people themselves, it doesn’t mean they don’t have tells because they usually do. If you can observe these tips, therefore, you will be much less likely to fall for a scam in future. So here goes:

Conduct your due diligence on the company in question

We always talk about finding out if a retail Forex broker is licensed and regulated, but you also need to find out everything you can about the company itself. Warren Buffet once said that he invested only in the companies he knew very well, and not just those that seem profitable. This would explain why he hasn’t invested in cryptocurrencies and continues to discourage others from doing so. Anyway, before you make that deposit, find out as much as you can about the company itself.

In the case of Black Diamond and other Forex frauds, the investors would have quickly learned that there was something suspicious about it by looking at its structure. First, it wasn’t licensed to operate in the US and not regulated by any financial regulator. Furthermore, it wasn’t even based in the US. As for Gerald Rogers, the guy had previously been convicted for fraud and was actually on parole when he created Premium Investment Corp. As you can see, these two major FX scams could have been avoided simply by doing a bit of research into the companies and the people behind them. To put it simply, make Google your friend before making the leap.

Find out what other people have to say about the investment

If there is one thing the internet has made very easy to access is information. I personally don’t like how much time people spend on the internet sharing their problems, but in this case, I do appreciate it. For example, last year when there was a wave of ICOs being launched, much of the information I got as from online forums and social media, and that helped me weed out the bad apples. You can also use this resource to learn more about a Forex broker and avoid Forex brokers scams.

However, you need to be careful where you get your information because there are some review websites that are used by the fraudulent brokers themselves to spread the fake positive news. It may be a bit tricky to select the good review websites from the bad, but you should look at whether the comments seem faked or inconsistent. Fortunately for you, I have made a separate post to cover this exact problem in more detail.

Beware of unrealistic promises

In the first case of Black Diamond, the most obvious sign that it was all a Forex brokers scam was in the extent of promises made by the company. Always remember that, when the deal is too good, think twice. When it is extremely good, assume the worst and run. For example, the most successful hedge funds make about 5% in a good year, so anything above that should be enough to raise your eyebrow. Then look for any signs where the broker tries to downplay the risks involved. Forex trading is a very risky venture, perhaps even riskier than most other forms of investment.

Therefore, if the broker tries to promise that there are minimal risks or none at all, just assume that they are lying. Consider what the most recent Forex regulations set out by MiFID II require that all Forex brokers indicate clearly that Forex trading is extremely risky. Moreover, they ought to warn traders that it is possible to lose more than you initially invested. As a result, do not believe anyone who claims that there is only minimal risks involved.

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